The Buffett Indicator, inflation, and Warren Buffett's leadership

00:00 Speaker A

Buffett championed the art of value investing as taught to him by mentor Benjamin Graham, which is rooted in an unwillingness to overpay for acquisitions or stock investments. Naturally, along the way, Buffett developed a favorite investing indicator or two. One of them is the Buffet indicator, as it’s known by devoted followers of the Oracle of Omaha. The indicator takes the Wilshire 5000 index and divides it by the annual US GDP. Picking apart the numbers today, the Buffet indicator stands at about 221.4%, up a sharp 22% from April 30th, according to data from Guru Focus. The indicator has never been at a higher level dating back to the earliest data from Guru Focus in 1970. So what should investors take from this and more broadly from Buffet’s career? Here on the opening Bid round table, Max Wasserman, Mirmar Capital co-founder and senior portfolio manager alongside Yahoo Finance senior reporters, Brooke DePalma and Inez. Max, coming to you. You heard me uh talk a lot about Warren Buffett there.

01:08 Speaker A

What do you make of his indicator? Because I went back and it’s been overvalued for the past couple of years in part because of this AI boom. Should you just be ignoring something like this?

01:21 Max Wasserman

Uh good morning and I believe no, but then I’m biased because I’ve been a student of Benjamin Graham. I that’s how I learned in graduate school and undergrad. I think it’s telling you that this market is very richly valued and that the risk, the asymmetrical risk may not be in your favor when you’re looking at indexes. I mean, it’s individual stocks that really count that make up the portfolio. But when you look at the broad index, I I think this tells you that the market is overvalued because it is heavily concentrated in a handful of stocks. I don’t believe if you took out those handful of stocks that the market would be as richly valued. But clearly, I think the Buffet indicator tells you that given where we are with valuations, you got to be careful for that asymmetrical downside versus the upside.

02:07 Speaker A

Max, if on the long list of things to be worried about for next year from AI over expansion to what happens to Fed policy, you name it, or even if tariffs are back in play come January in Scotus uh decision. What is your top concern and why?

02:30 Max Wasserman

My my top concern is inflation. If the Fed turns out to uh be moving one direction and the administration wants to go in another. If we see that inflation is more stubborn and that we continue continue to cut interest rates, which it looks like we believe they’re going to do at least another 50 next year. You could get a environment where the dollar gets very weakened and you could get sort of like a stagflation and that takes more risk in the market and that creates uncertainty. So I think inflation is probably my number one and especially too quick of expansionary monetary policy. I don’t see the need for this type of aggressive cutting given where the economy is.

03:22 Speaker A

Uh and as you and I have covered uh Warren Buffett for for many years and he has always said not to bet against America. And and to his point, look at where this country is now. I mean, the AI infrastructure boom is very much live and well. I imagine that’s benefiting his uh Burlington Northern Railroad.

03:45 Max Wasserman

Yes, I mean, when

03:46 Ines Ferre

You know,

03:48 Speaker A

Go ahead, Inez.

03:49 Ines Ferre

Yes, look, uh uh AI is definitely the what Wall Street has been focused on when it comes to the market and when it comes to price targets for next year. Um as far as um Warren Buffett saying not to bet against America. Yes, I remember him saying that so many times also during the pandemic as well. Um Berkshire Hathaway has now bought alphabet. So it is within the AI trade. It has also Apple in its holdings as well. I mean, just taking a look at some of the uh some of the stocks that they’ve acquired as well, Chubb, um Amex, Oxy, Chevron. So this is a company that has done very well for itself under Warren Buffett’s leadership. And I will say that, you know, as his leadership comes to a close and he hands off the baton to Greg Gable, what strikes me the most beyond just his pearls of wisdom that he constantly has given uh investors is also his kindness. And and in the uh Thanksgiving shareholder letter that he wrote, he put it, kindness is costless but also priceless. And he said, keep in mind that the cleaning lady is as much a human being as the chairman. I think that his legacy will be not only a great investor, but also a kind investor. And in a world where there is so much conflict, meanness and everything else, that speaks volumes to his leadership.